The International Convention on The Harmonized Commodity Description and
Coding System (HS Nomenclature) from the Customs Co-operation Council(2) (C.C.C.)
designated the code (heading) 2716 to Electricity energy. The heading is
under chapter 27, which comprehends “Mineral fuels, mineral oils and
products of their distillation; bituminous substances; mineral waxes”.
Under the HS 2716 heading, several countries have regulated the
international trade of electricity energy. Controls and specific customs
procedures have been designed to deal with its particularities. For
example, due to practical reasons, customs clearance is done after the
entry of the good in the territory and according to measurements at the
power plant. Electricity energy is thus considered to qualify as a good
and by that subject to the rules of the World Trade Organization (WTO).
WTO Customs Valuation Agreement
Among the WTO rules for the trade of electricity energy is the
application of the WTO Customs Valuation Agreement (CVA). The CVA also
known as the Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade 1994 “aims for a fair, uniform and
neutral system for the valuation of goods for customs purposes — a
system that conforms to commercial realities, and which outlaws the use
of arbitrary or fictitious customs values.” (3)
The Agreement stipulates that customs valuation shall, except in
specified circumstances, be based on the actual price of the goods to be
valued, which is generally shown on the invoice. This price, plus
adjustments for certain elements listed in Article 8, equals the
transaction value, which constitutes the first and most important method
of valuation referred to in the Agreement.
Electricity energy trade contract
The standard trade contract concerning electricity energy has at least
two clauses worth consideration for the national Customs authority when
trying to obtain the transaction value, price actually paid or payable:
1) Commitment of payment for mininum contracted quantities, known as
“take-or-pay” provisions and 2) Payments relating to construction and
maintenance of the transmission system in the exporting country.
The first consideration is the “take-or-pay” clause. The “take-or-pay”
clause is a provision, written into a contract, whereby one party has
the obligation of either taking delivery of goods or paying a specified
amount. This is used in some contracts as a method to ensure that the
transaction occurs. For example, a banana farmer will enter into a
take-or-pay contract with a fruit retailer so that the retailer will buy
all the bananas from the farmer or pay a provision for not buying them.
Nowadays it is common to have “take-or-pay” clauses in electricity
energy contracts. The importer is obliged to pay a minimum provision for
consumption, even if at a certain period little of electricity energy is
The challenge for Customs authorities is whether the “take-or-pay”
payment forms part of the transaction value, price actually paid or
payable, and therefore should be taxable or if it should be considered a
kind of penalty/premium and does not relate to the value of the goods.
The practical case divides experts opinions and so far there are no
guidelines from the Committee on Customs Valuation (CCV) or the
Technical Committee Customs Valuation (TCCV).
The second consideration deals with the payments relating to
construction and maintenance of the transmission system in the exporting
country. It is a known fact that the trade on electricity energy demands
the deployment of heavy infrastructure.
In many cases the importer bears the cost of construction and
maintenance of the transmission lines in the exporting country in order
to import the electricity energy. The costs are carried in the country
of exportation and previous to importation.
The question for Customs authorities is whether the payments that the
importer must make for the construction and maintenance of the
infra-structure are directly related to the sale of the good. Customs
valuation of imported electricity energy should or should not include
Here again no consensus is reached and the question remains open to
different national approaches and distinct WTO CVA applications. In
conclusion, the WTO CVA is not uniformly applied and leaves some open
issues to be dealt on by national legislations.
Finally one must realize that many countries
have national or regional taxes over electricity energy and thus the WTO
CVA plays an important role. Therefore the adequate application of the
WTO CVA reflecting on the countries valuation and taxation of
electricity energy is relevant in order to create positive influences to
the market trade development.
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1. Also Served as Vice-Chair of the TCCV
during 2005-2006. Collaborated in WTO Trade Facilitation missions in
Africa and Asia. Leonardo holds a Masters in Law and Bachelors in
Economics and Law. His research includes Customs Valuation, Trade
Facilitation and Customs procedures. Back to text
2. In June 1994 the Council adopted the informal working name
“World Customs Organization (WCO)” for the Customs Co-operation Council.
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